After months of anticipation, the East River Development Alliance (ERDA), a non-profit organization established in 2004 to help public housing residents by expanding their economic opportunities, [has] finally opened its Federal Credit Union (FCU) – the first to be chartered in New York City in 10 years.

According to ERDA, three out of 10 people in the Ravenswood, Queensbridge, Astoria and Woodside Houses – which will be served by the new credit union – currently lack bank accounts. [The credit union] will help change that, ERDA says, by providing public housing residents with a means to build capital, manage their money and achieve their financial goals. Proponents also believe the FCU’s presence will spark economic development in the area.

A credit union is a cooperative financial institutions that is owned and controlled by its members and operated for the purposes of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. I call them familiar because they’ve existed for quite some time – the first credit union in the U.S. was founded in 1909 and they’ve been under federal supervision since 1934, backed by the full faith and credit of the FDIC.

The ERDA credit union launch ties in quite nicely with my recent thoughts on microfinance, particularly with respect to its lack of freshness. Here is a centuries-old system of community-based finance, owned by its depositors – sounds an awful lot like a Grameen Bank. Yet for all the fanfare that has surrounded microfinance, people often overlook the credit union as a tested tool for financial reform in this country. ERDA’s is the first credit union chartered under the Obama administration, and the first established in New York City in over 10 years.

So props to ERDA for reminding us of the tools we have! As we contemplate how to regulate institutions that are too big to fail, it’s quite reassuring to know that we might also promote those that are small enough to matter.

* on a related note, check out Raghuram Rajan’s radically provocative thoughts on why deposit insurance should only exist for community-based financial institutions, via Ezra. It’ll make you go ‘hmmm.’

The founding idea of WikiLeaks is beautiful in its simplicity, an anonymous repository for government and corporate officials to leak things of critical importance to the voting public. Like wikipedia, anyone can put forth content into the public dialogue, and the organization goes to great lengths to protect its sources. The organization has facilitated leaks around the world, including the Climategate emails and the Palin email hack. As The National is quoted on their website saying, “WikiLeaks has probably produced more scoops in its short life than the Washington Post has in the past 30 years.”

But a recent leak may have gotten them in the hot seat. The video below, entitled “Collateral Murder” by WikiLeaks, is of a 2007 Apache Helicopter Attack in Bagdhad that resulted in the deaths of civilians, including two Reuters news employees. The issue was that many observers did not find that this constituted a war crime, and found WikiLeaks’ editorializing to be particularly distasteful and misleading. You be the judge [Warning: it is tough to watch]:

The official Pentagon story is that there was small gunfire in the area, though the founder of WikiLeaks, Julian Assange, disputes that in this interview with Stephen Colbert, who may or maynot have stepped out of character to condemn the slant:

I am empathetic to the critiques made of WikiLeaks; to call it “Collateral Murder” inserts a deliberate subjective opinion onto a purportedly objective piece of media. But what is funny about the whole thing to me is the fact that we accept this kind of sensationalist editorializing in virtually every other journalistic output. Rarely do the loud, outlandish lower graphics on Cable News channels match the objectivity demanded by the profession, and try picking up the New York Post any day of the week. Why should we begrudge Assange for trying to “achieve the maximum political impact” for what is nothing more than a leaked video in a case where the Pentagon was being particularly secretive?

Colbert gets him on this, because the video is slightly edited, but it is light years away from the chopped up 30-second clips that might squeeze past a TV news editor’s desk, if they actually aren’t too PG to show it. However, the fact that only 1 in 10 watched the whole thing should raise some eyebrows about the powerful impressions made in those first two minutes.

I am reminded of a critique I once read about the use of exclamation points by Lewis Thomas, who noted, “If a sentence really has something of importance to say, something quite remarkable, it doesn’t need a mark to point it out.”

I applaud the effort to make transparent the pain and suffering and collateral damage that comes from wars, especially those fought on false pretenses. That effort is certainly of importance. It shouldn’t need any slant to point that out (and we all know cable news will jump right in to fill any voids in that department).

So, do you think WikiLeaks crossed a line? Would it have hurt their effort if they had simply added a question mark to the title, and let viewers and politicians and lawyers make their own judgments? Is WikiLeaks really a threat to national security?

I worked for a microfinance organization, so it’s a little strange that I have not come around to talking about it yet, but a recent New York Times article touched on all of issues surrounding microfinance that I have been pondering. So I guess its time for me to confront my opinions.

Microfinance has been hailed by Muhammad Yunus and many others as the elusive formula to improving the lot of the world’s poor. It is thought that providing small loans to poor people will allow them to pull themselves out of poverty by virtue of no longer having working capital constraints on their entrepreneurial ventures.

One must first consider that lending to poor people is not, in and of itself, a novel idea. People with capital have always been there to lend it to those who don’t have access to it, and to take profits off the top. We called these people loan sharks, and have long stigmatized them in film. They sit in dimly lit rooms and finance a protagonist at a time of desperation. Later, when the loan goes sour, they use violent methods of collection.

There are certainly these sorts of loan sharks out there, but that is not the whole story. Some are just moneylenders, respected members of their communities, attempting to fill a capital gap because banks, the “formal” arbiters of small business finance, refused to lend in these communities. The banks considered it too costly to reach these borrowers, and the interest to be earned off of their small balances, has not traditionally been worth the effort.

Enter microfinance. It has always been an attempt to “formalize” the practice of small-scale lending, to provide safe and affordable access to capital to the segments of society forced to rely on predatory lenders. And formalize they did. MFIs simply institutionalized the practice of community lending that existed, which is why many people remain so skeptical. The interest rates still appear predatory and there are still rumors of abusive collection practices.

The question of whether or not small loans, in and of themselves, can eradicate poverty is hotly debated. After much internal debate, I have come to the conclusion that, financially speaking, it is simply not feasible. Even the cheapest microfinance organization is lending at well above 20% APR and thus for this sort of small-scale entrepreneurship to be sustainable, microborrowers would have to be earning above that. Now, imagine what Compartamos borrowers would have to earn.

But not even the largest, most efficient corporations in the world are capable of consistently earning returns like that – the market average is, at best, 10%. If it were indeed the case that microentrepreneurs could consistently earn 30-130% on borrowed capital, we’d all be hawking handmade goods on the street and selling fish out of the back our cars, and you can be damn sure that banks would be lending to us. This is why the interest rate question is so important, because if you can’t earn above the cost of borrowing, the only options are then deeper indebtedness (i.e. more microlending) or bankruptcy.

But I am still a huge proponent of microfinance.

The way I see it, microfinance is the stepping stone between the bottom of the pyramid and the true engine of wealth building, savings. Microfinance has introduced millions to formal financial services, and as MFIs struggling to become self-sufficient have turned to collecting deposits, they are introducing people to the real consumer benefits of banking, saving.

In the future, we will see that MFIs simply laid down the distribution channels, proving that the poor demanded financial services and that they could be reached affordably – that was the true innovation. And as mobile technology and other innovations bring down the cost of banking to the poor, the logical conclusion of the story, like it or not, will be the transformation or consolidation of MFIs into the traditional banks. MFIs may survive as full-time distributors, selling loans and receivables between banks and borrowers, but the net effect will be the same, JP Morgan and co. trolling around the bottom of the pyramid.

The reason this scares people is that they think banks will profiteer off of the poor. But one should remember that banks are heavily regulated with respect to the interest rates they can charge; the same cannot be said for all MFIs, especially non-profit ones. If there is any reason that banks and MFIs can get away with charging exhorbitant interest rates, it is because the local usury laws permit it.

This is not a question of greed and profit margins. It is a question of democracy, the will of the people and the rule of law. It is about what interest rates we as a society are willing to accept.

At the end of the day, if we get the laws right, we will have expanded access to financial services to all corners of the globe, with regulated lending and the opportunity to save open to all.

And isn’t that what we truly want? Because think about it: if the end of this story is not about savings, are we not just creating another generation of debt-addicted citizens? Are we not just blowing up another lending bubble?

[The caveat of all this, of course, is financial literacy and how well we educate ourselves on the responsible use of financial services. This is not limited to the poor. It should be a mandated part of high school curriculum for all]

A group of Republican senators, led by the Senate Finance Committee’s ranking member Sen. Chuck Grassley, R-Iowa, sent a letter…criticizing the non-profit organization’s use of tens of millions of dollars in federal funds that it receives every year.

[...] the letter specifically cited [CEO Roxanne] Spillett…for raking in $988,591 in total compensation in 2008, according to IRS filings.

That’s right. A million dollars. It seems pretty astounding that an organization dedicated to public service and opposed to distributing profits can get away with paying someone a million dollars, especially one that boasts on its website that its “efficient use of resources has won national recognition.”

I have to admit, I am empathetic to the idea of paying competitive salaries to non-profit executives. The work is as hard, if not harder, than that of any other sector and you are forced to deal with its ambiguity of success. With evidence-based funders and impact/efficiency critics (myself occasionally included) questioning the difficult-to-measure outcomes of your efforts, it can seem pretty thankless. Anyone not particularly keen on having their good intentions judged, or carrying any significant education debt, will undoubtedly consider if their efforts might be better compensated in the private sector.

And one should at least consider the scale of this organization. BGCA operates over 4,000 clubs nationwide, with over 50,000 employees, and serves over 4 million kids each year. Spillet is essentially paid $0.25 per kid – not a bad price to pay if she is able to successfully fulfill her mission: “To enable all young people, especially those who need us most, to reach their full potential as productive, caring, responsible citizens”

But a million dollars?

For argument’s sake, lets dig a little closer into the numbers:

[...] of Spillett’s total compensation, $360,774 was her base salary, which the organization said had not changed since 2006. She also received an “incentive based on performance” of $150,000 as well as benefits, expenses and contributions to deferred retirement plans totaling $477,817.

The numbers still seem shocking, but perhaps there is potential in “incentive based on performance.” If folks in the non-profit world want to justify this kind of compensation, it seems to me the best way is to tie it to impact.
Its essentially what the private sector does when it buries the bulk of executive compensation in stock options. Pay for outcomes, not just leadership.

The key is transparency. Unfortunately, we have no idea what Spillet’s incentive was based on, but I’d guess that if people knew that her compensation came as a result of increasing the rate at which teenagers graduate high school and earn college degrees, they may not be as appalled by the prospect of paying her a quarter per kid to do it.

Thoughts?

p.s. Not to be a hater, but BCGA and others could at least take 1/1000th of these salaries and build decent websites? No one is gonna want to miss out on the impending iPad fundraising bonanza.

We’re often told to take Google’s “Don’t be evil” slogan with a grain of salt. It’s a corporation, after all, with a fiduciary responsibility to its shareholders and thus allegedly constrained in its effort to promote non-evil causes.

Sarah Lacy at TechCrunch speculated they are trying to save face after failing to capture share:

Does anyone really think Google would be doing this if it had top market share in the country? [...] Google has clearly decided doing business in China isn’t worth it, and are turning what would be a negative into a marketing positive for its business in the rest of the world.

While much of the media point to the ['do no evil'] slogan as the basis of the power play, one can see that the self-censorship policy simply doesn’t align with [Google's] business vision…to make information universally accessible and useful.

But bottom line, it was still a business move, to me. If Google just wanted to help people in China get good information, it could have spent the past four years helping to construct ways for people in China to bypass their government’s firewall. Or the past four years arguing that the US government and US-based businesses should follow its lead in staying out of China.

And Matthew Forney and Arthur Kroeber, opining at the Wall Street Journal, say its all about trust:

The reason is simple: Google’s business model requires that its consumers trust that their information will be absolutely secure. So when Google says it will “do no evil” and will never compromise on its principles or its technologies, the world must believe it.

Whatever your take, the irony of the whole thing is that Google would not be able to promote democracy in China were it not for its own fundamentally authoritarian governance structure.

When the company went public in 2004 they created a dual-class voting structure that basically gave Larry Page and Sergey Brin unbridled power and authority – outside shareholders cannot override their decisions. Amalie Tuffin explained at the time:

Google and its selling shareholders are selling Class B common stock, having 1 vote per share in the offering; Google’s founders, its CEO Eric Schmidt, and certain others will retain Class A common stock, having 10 votes per share, after the offering. In the initial offering, only about 10% to 15% of Google’s shares will be sold to the public and thus Google’s current owners would initially retain control in any event. However, this dual-class stock structure will allow Google’s insiders to retain effective control over Google long after a majority of the company is owned by the public.

Consider the implications. Could any other company operating under the traditional rules of delivering returns to shareholders afford to walk away from the 1.3 billion-person behemoth that is China?

Google’s IPO precedent may be replicated by Facebook and others. And as social networking companies become increasingly important to democratic movements, we may yet see more of this sort of corporate activism in the future.

What are your thoughts? Purely strategic? Just business? Hypocritical? Is Google’s stock structure fair to shareholders? Or is it a chance to break free of corporate constraints on social responsibility?

OkTrends, the awesome official blog of OkCupid, drops some cool insights on politics and dating. Definitely check out the entire post; trends on the popular dating website suggest the Dems are inherently doomed.

According to OkCupid’s compatibility scoring, Republicans are much more compatible with themselves than Democrats are with themselves. Check out the compatibility scoring across the political plane (green = more compatible, red = less compatible):

They make an interesting point about how this compatibility may explain why Republicans are able to maintain a cohesive opposition front while the Democrats are less adept at buidling consensus. Either that, or they are suggesting Congressional Republicans should be dating.

Also, check out how people’s political persuasions change as they age:

In a way, this may suggest that the best years for finding compatible matches are our 30s and 40s, when we are, on average, more economically permissive and socially restrictive.

The cornerstone of the bill, extending coverage, was always the goal. The big questions were how we were going to pay for it and would it bring down costs in the long-run. On the rollercoaster ride of developing this bill, we mainly heard three answers, since the mainstream media only likes to give us information in small digestible bites we need not chew.

First, the House wanted a surtax on the wealthiest, but that could never fly in the Senate. Second, there was the infamous public option, based on the hope that competition in the oligopolistic insurance sector would drive down costs. R.I.P. Finally, the bill settled on the so-called “Cadillac-Tax,” a surcharge on the most expensive insurance plans out there that aims to discourage their existence.

The effectiveness of the Cadillac-Tax was potentially diminished by the last-minute compromise to delay its effective date until 2018, and critics argue that the cost question still looms large. But there are other measures in the bill that we’ve heard almost nothing about that will significantly impact the cost burden of this landmark legislation.

The Independent Payment Advisory Board

The bill establishes an independent 15-member advisory board to make concrete recommendations to curb costs without raising taxes or rationing care. If health care costs continue to rise at an unacceptable rate, Congress cannot reject their recommendations without substituting equivalent savings.

Transparency of Payments and Fees

Often overlooked is the transparency this bill brings to the industry. Ezra summarizes:

…hospitals will have to post prices. Insurance products will be presented with standardized information, consumer ratings and quality measures. The payments physicians take from drug and device companies will be in a public database. There will be independent funding for research on the relative effectiveness of different treatments. Some of these changes are small and some are big, but put together, the system is going to become a lot more visible in the coming years.

Indeed. These are not minor. Can you think of any other good or service you pay for without being told the price? And drug companies and medical device manufacturers spend tons on direct marketing to doctors. Pharma alone spends $30 billion annually. These things go a long way towards making health care look more like any other business.

Improved Translation of Biomedical Research

Recently, I have been obsessed with Lewis Thomas – biologist, writer and one of the most brilliant minds I have ever encountered – who put the value of research spending in perspective for me. In The Lives of a Cell, his celebrated 1974 collection of essays, he wrote on what he called “The Technology of Medicine,” adopting an unconventional use of the term and breaking it into three segments:

Nontechnology refers to the supportive therapy doctors provide to patients suffering from chronic disease. It is essential and costly, but bears no capacity to alter the natural course of disease or its outcome.

Halfway technology “represents the efforts to compensate for the incapacitating effects of certain diseases whose outcome one is unable to do very much about. It is a technology designed to make up for disease, or to postpone death.”

High Technology is the “genuinely decisive” technology of medicine, manifested in modern methods for immunization against diphtheria or tuberculosis. It is that which effectively deals with disease.

Thomas argued that the cost of the high technology of medicine is pennies next to the cost of managing disease during earlier stages of no-technology or halfway technology. He argues that if one were to manage a case of typhoid fever today using the best technology available in 1935, it would require 50 days of hospitalization, maybe surgery and cost tens of thousands of dollars, compared with today’s cost of a bottle of cloramphenicol and a brief fever.

We spend billions on halfway technology – surgeries, transplants, artificial organs, chemotherapy – and the only way to achieve high technology is to truly understand the mechanisms of disease and translate that into treatment. The health care bill has something there too.

An interesting discussion emerged recently after Ryan Avent argued that regulatory hurdles are preventing any innovation in the automobile sector. Since carmakers face strict safety requirements, among many other constraints, they are effectively pigeonholed into creating cars of a certain size and weight. Avent proposed creating the space for innovation by making separate lanes free from traditional car traffic, thus freeing carmakers of some of the traditional regulatory constraints and opening the door to genuine innovation, such as smaller, lighter single-passenger vehicles.

James Joyner was quick to dismantle Avent’s imaginary cars on practical grounds. Megan McArdle reaffirmed that safety concerns necessitate bigger, stronger and thus heavier cars and also reminded us that most Americans need storage space for groceries and such. One of her readers pointed to the Smart Car as experimental evidence of these arguments.

Most of Avent’s critics made valid points, but I believe his ideas were mostly appropriate for urban users that have become adept at dealing with space constraints, and it rings true to me that creating the space is a crucial element. In the same way that bike lanes bring more bikers out on the road, a safer space could bring all kinds of interesting transport devices out in the open. Readers following the discussion at The Daily Dishpointed to the Myers Motors NmG and to Segway’s P.U.M.A as examples of what we can expect to see.

Notwithstanding all the holes and hypotheticals, it actually seems to me that the industry is taking significant steps in the right direction on fuel-efficiency. Consider some recent news.

Abandoning wasteful excess. Hybrid high-powered sports and luxury vehicles. Making it affordable. I don’t know, I may be optimistic, but it feels like we are reaching a critical point on the road to mass adoption of energy efficient vehicles.

…the New York City taxi ride — one of the city’s few remaining redoubts of solitude — will go communal. Up to four passengers will be able to share a yellow taxi ride, car-pool style, along three preset routes in Manhattan.

The flat fare will be $3 or $4 a head, significantly less than the regular metered rates, and riders can ask to be dropped off at most points along the route. The shared rides, which will pick up passengers at designated taxi stands, will be allowed only on weekdays from 6 to 10 a.m.

At first I was skeptical. There is talk about how the practice of sharing cabs is commonplace in D.C., but that is because cabs there used to operate using zones, with designated fees for the neighborhoods travelled to, instead of meters. Higher fares and certainty gave incentive to share. If you know you are going to pay $16 to get anywhere in Logan Circle, it’s easy to find a couple other bums heading that way willing to split the cost. But it wasn’t universally loved.

Cab sharing seemed less natural in New York because you never knew exactly what the cost might be. It’s hard enough to fairly split a cab with a friend when your destinations have approximately 68% of the route in common and the fare is yet-to-be-determined. Imagine trying it with multiple strangers.

But a predetermined route with a flat fare made sense to me after I realized that it wasn’t particularly that innovative. I first saw it during my semester in South Africa in 2003, where the majority of residents live in townships and slums outside of the urban centers. Taxis are prohibitively expensive for most people and buses are not that much better.

Entrepreneurial South Africans started cab sharing businesses. They bought Volkswagon kombis and began running predetermined routes in and out of the city center, picking up and dropping off passengers along the way. They are creatively crammed in – around 16 riders is pretty standard, but I read about one that managed to squeeze in 38 people! The fares are a fraction of the cost of any other form of transportation.

As a matter of fact, the practice has long existed in New York. All day, every day, unmarked Dollar Vans drive recklessly up and down Flatbush Avenue in Brooklyn. They weave in and out of traffic, veer to the curb without warning, slide the door open, out hops a resident from Prospect Lefferts Gardens right in front of the Atlantic Center, and off goes the van. The whole thing has the appearance of a sting operation in some bad movie.

Formal cab sharing in New York is being piloted on a limited basis. And now that D.C. started using meters, cab-sharing is only officially available from Union Station. It seems constraining to try choose the routes. There doesn’t seem to be much value added by a cab-sharing route running down Park Ave, directly on top of the 6 train, and there may be signs that D.C. riders are still craving the option to share in other areas.

So I say let the practice evolve on its own. As in Brooklyn and South Africa, the routes where it can work will emerge organically; it actually already happened in Manhattan. And who knows? Cab sharing may just become an art.

So Google Buzz blindsided us. People woke up to a new little icon in their gmail, curiously clicked it, and found themselves once again exposed to the people they communicate with.

Many found they had been nudged in a direction that they didn’t want to go. Status messages, Picasa uploads and what soon amounted to online chats were shared, by default, with nearly every person we’d ever contacted, from our closest friends to that dude we once had an ebay transaction with.

I tend not to worry too much about the privacy stuff, which puts me in line with the younger generation but a little distanced from my peers. But to many people, the problem with Buzz wasn’t just the sharing part, it was the “by default” part. It was the proposition that Google would go ahead and decide who would be privy to your personal information without even bothering to ask you.

It reminded me of something. The notions of nudges and defaults, based in theories of behavioral economics, has influenced a lot of policy decisions recently. For example, in New York City, Mayor Bloomberg initiated calorie labeling at fast food restaurants in hopes of curbing the obesity epidemic and people lashed out this apparent paternalism. The news of an initial study showing labeling might actually increase calorie consumption provided comfort to critics. But theories posited that people grew overconfident about consumption since they had more information, and the more encouraging news emerged that the key was to also affix a line suggesting a 2,000 calorie diet.

In other news, the Obama administration has pushed for automatic enrollment in 401(k) plans. One of the biggest economic mysteries has been why people so often fail to take full advantage of the tax benefits of a 401(k). But recent studies suggested that people were far more likely to maintain a 401(k) if they were enrolled by default, with an option to opt-out, instead of choosing to opt-in. Retirement savings are getting a big boost from this minor default switch.

The point I hope to make with these two stories is that defaults and nudges are good in that they force us to educate ourselves about the issues. Fast food patrons are more cautious when they understand how one meal can easily take up 75% of their daily recommended calories. Workers are more likely to take advantage of 401(k) plans once they learn about the tax savings. The Google Buzz debacle’s silver lining is that it once again forced us to educate ourselves about our online privacy.

So if Google Buzz’s brief overexposure forced me, and students, and employees, and parents around the world to take a closer look at their privacy policies and educate themselves, I for one don’t mind.